Sentance Says U.K. Recovery ‘Encouraging,’ Needs Rate Increase

Oct. 22 (Bloomberg) -- Bank of England policy maker Andrew
Sentance said the recovery in U.K. manufacturing is
“encouraging” and repeated his call for a “gradual” increase
in interest rates from a record low.

“What I’m in favor of is a gradual rise in interest rates
which will not destabilize the recovery and disrupt business and
consumer confidence,” Sentance said in an interview on BBC West
Midlands radio broadcast today. While the recovery is not
“uniform,” the “erratic” data are usual at this stage of the
economic cycle, he said.

Sentance has campaigned since June for an interest-rate
increase to tame inflation, though his calls have so far been
ignored and colleague Adam Posen voted this month to expand
asset purchases. Minutes of the Oct. 7 meeting show that other
members of the nine-person Monetary Policy Committee are leaning
toward Posen, with “some” of them finding it more likely that
further stimulus “would become necessary.”

Sentance said the record low interest rate of 0.5 percent
was “put in place against a very different backdrop than we are
in now.” He also said an increase in rates would help to lower
the inflation rate, which held above the government’s 3 percent
limit for a seventh month in September.

“Now the global economy has turned around, the U.K.
economy grew around 2.5 percent over the last year,” he said.
“We don’t need so much stimulus.”

The recovery in manufacturing has been “encouraging” as
industry benefits from a “strong” global economy and the
pound’s decline, Sentance said. The recovery is “stronger in
some areas than others,” he said. “It’s not a uniform
recovery.”

He also said it’s “very important” that confidence is
maintained and he wants to avoid a “sharp” increase in
interest rates.